Kerala State electricity Board and ANR. V/S Kurien E. Kalathil and ANR.

The court stated that referring the parties to arbitration has serious civil consequences procedurally and substantively

Case name: Kerala State Electricity Board and ANR. V/S Kurien E. Kalathil and ANR
Case number: Civil appeal number-3164-3165 OF 2017
Court: The Supreme Court of India
Bench: JUSTICE RANJAN GOGOI, JUSTICE R. BANUMATHI
Decided on: MARCH 09, 2018
Relevant Act/Sections: Section 34(2) and 89 of CPC, Article 136 and 226 of the Constitution of India
  • BRIEF FACTS AND PROCEDURAL HISTORY:
    • The Appellant-Kerala State Electricity Board, entered into an agreement on 16.09.1981 with respondent- contractor for construction of a composite dam. After commencement of work, Government of Kerala issued a notification dated 30.03.1983, by which minimum wages payable to certain categories of workers was revised with effect from 01.04.1983.
  • The respondent claimed labor escalation charges from 01.04.1983 to December, 1984. The Government of Kerala referred the matter to the industrial tribunal for adjudication of the dispute. The industrial tribunal passed the award dated 14.10.1993 holding that the notification of Government of Kerala was applicable to workmen employed by the respondent.
  • Respondent filed O.P.No.283 of 1995 claiming an amount of Rs.6,32,84,050/- towards labor escalation charges and an amount of Rs.7,66,35,927/- being interest at the rate of 18% per annum payable under Ex.P20 in respect of various bills issued by the respondent for the period 15.01.1985 to 31.10.1994. When the said writ was pending, the appellant terminated the contract with respondent, which again came to be challenged before the High Court by filing O.P.No.10759 of 1997 against termination of contract and for the payment of works done (Ex.P59) by respondent.
  • PROCEDURAL HISTORY:The High Court disposed of both the petitions by a common judgment held that the termination of contract was arbitrary and directed the Board to pay the amount claimed by the respondent with interest at the rate of 18% per annum. The High Court also directed the Board to pay the amount under Ex.P59 towards additional work done by the respondent.Being aggrieved, appellant approached this Court by way of appeal in C.A.No.4092 of 2000 reported in Kerala State Electricity Board and Another v. Kurien E. Kalathil and Others[1].
  • In para (11) of the judgment, this Court observed that the contract between the parties is in the realm of private law and not a statutory contract and the matter could not have been agitated in the writ petition. However, having regard to the fact that the contract was of the year 1981 and the notification was issued in 1983 and in the peculiar facts and circumstances, this Court did not interfere with the order of the High Court, but reduced the rate of interest from 18% p.a. to 9% p.a. So far as Ex.P59 is concerned, there was no direction by this Court. Review petition filed by the appellant was dismissed by this Court.
    • The appellant has so far paid an amount of Rs.12,82,96,320/- under Ex.P20 which was accepted by the respondent without any demur. Three years after the payment, respondent filed I.A.No.6 of 2006 seeking direction of the court to make payments due, with further interest to be paid. In which this Court had passed the order that “the Kerala State Electricity Board is liable to pay certain amount to the Petitioner-Contractor and gave liberty to the Petitioner to move to the High Court of Kerala seeking further steps for the recovery of the amount and if there is any dispute between the petitioner and the Electricity Board, the High Court would consider the same and issue appropriate directions within a reasonable time….”
  • Respondent-contractor filed W.P. before the High Court. The High Court allowed the writ petition directing the Board to pay Rs.12,92,29,378/- within three months with 9% simple interest. So far as the claim as to the additional work done, the High Court directed the parties to mutually discuss among themselves. Further, the High Court referred the matter to the sole arbitrator Justice K.A. Nayar, former Judge of the High Court of Kerala to resolve the dispute. The appellant-Board filed review, which was dismissed on 23.06.2009. Being aggrieved, the appellant is before this court.
  • ISSUE BEFORE THE COURT:
    • Whether the contractor is justified in appropriation of payment firstly towards interest?
  • Whether the contractor is entitled to subsequent interest on the amount claimed in Ex.P20?
  • Whether the High Court was right in referring the parties to arbitration on the oral consent given by the counsel without written instruction from the party?
  • RATIO OF THE COURT
  • After hearing to both the learned counsels, the court observed that as per the facts and circumstances of the present case and since public money is involved, the court deem it a fit case for reappreciating the facts and the materials on record or otherwise the findings of the High Court are likely to result in excessive hardship to the appellant-Board and consequently passed on to the consumers. In the same manner, for all the bills, the respondent has calculated the “Value of work done”, “difference in wages” and “Labor Escalation Charges” on monthly basis. After so calculating, the respondent shown Rs.6,32,84,050/- as total amount due towards labor escalation. The court observed that, in computation, the respondent contractor himself adjusted all payments received from the appellant, only towards the principal and not towards interest.
  • Parties are governed by the terms of the contract. Clause E1.079 of the agreement expressly provided that the appellant would pay no interest to the respondent for delayed payment. But when the respondent filed I.A.No.6 of 2006, the entire method of calculation was changed by showing adjustment of payments firstly towards interest and then towards principal. Since the respondent changed the method of adjustment, even after payment of Rs.12,82,96,320/, according to him Rs.3,38,57,618/- was still due to him. This manner of appropriation, is in clear violation of the directions given by this Court. This important aspect was lost sight by the High Court and the direction of the High Court to make further payment of Rs.4,12,58,224/- under Ex.P20 is not sustainable.
  • Learned counsel for the respondent submitted that in the case of a debt due with interest, the normal rule is that any payment made by the debtor, in the first instance, to be adjusted towards satisfaction of interest and only thereafter to the principal. The learned counsel placed reliance upon Meghraj and Others vs. Mst. Bayabai and Others[2] and I.C.D.S. Ltd. vs. Smithaben H. Patel (Smt.) and Others[3] where the court in para (14), held that, “the general rule of appropriation of payments towards a decretal amount is that such an amount is to be adjusted firstly, in accordance with the directions contained in the decree and in the absence of such direction, adjustments be made firstly in payment of interest and costs and thereafter in payment of the principal amount.”
  • In this particular case, since this Court directed the payment as per Ex.P20, the respondent cannot turn round and say that the amount received by him will be adjusted towards the interest first and then towards the principal.At this juncture, the court may usefully recapitulate respondent’s own letter to the appellant extracted in para (11) where the respondent himself has stated that he has deducted the advances from the principal amount claimed under “Labor Escalation Charges” and “interest” are shown separately.
  • As per the court, the respondent is not justified in changing the method of calculation and claim appropriation. The claim of the respondent for a further sum of Rs.2,29,34,559/- with interest under Ex.P20 cannot be sustained and the direction of the High Court to pay the same is liable to be set aside.Coming on to the question that whether the respondent is entitled to subsequent interest on the amount claimed under Ex.P20. The court observed, under Section 34(2) CPC, where a decree is silent as to payment of further interest on the principal sum, it shall be deemed to have been refused. In the present case, since there is no direction for future interest, the respondent cannot claim further interest on the amount payable under Ex.P20.
  • The appellant has paid a total amount of Rs.12,82,96,320/- and according to the Board, it has overpaid the respondent an excess amount of Rs.1,74,75,247/-. In the absence of any direction in the order of the High Court and order of this Court to pay subsequent interest, the respondent is not entitled to claim subsequent interest on the amount payable under Ex.P20. The direction of the High Court to pay subsequent interest of Rs.1,83,23,665/- under Ex.P20, is not sustainable.
  • The impugned judgment of the High Court directing the appellant to pay Rs.4,12,58,224/- under Ex.P20, should also be set aside.So far as Ex.P59 is concerned, it is towards additional work done – material escalation and labor escalation. Earlier, the High Court held, in para (26) of its judgment that, “the Board shall also pay to the petitioner the bills raised by him for the work done till date including labor escalation payment etc.”So far as Ex.P59 is concerned, the contractor has made a claim of Rs.5,55,62,597/- towards additional work and the Board has disputed the claim made by the respondent and pleaded that the total work done was only for Rs.1,55,65,817/- including cost of departmental materials.
  • The learned senior counsel for the respondent submitted that the claim of the respondent in Ex.P59 was not disputed by the appellant in its counter filed. But this contention does not merit acceptance. As pointed out above, the claim of the respondent on each one of the items in Ex.P59, the appellant has filed a detailed reply in I.A.No.6 of 2006 disputing the claim on each of the items claimed by the respondent. It is in this context, this Court has disposed of I.A. No.6 of 2006 observing that there is dispute regarding the quantum of the amount payable and giving liberty to the respondent contractor to move to the High Court. It is seen from the impugned judgment that the High Court has also taken note of the counter filed by the appellant in which the appellant disputed each one of the items in Ex.P59.
  • The High Court proceeded to observe that the contention of the appellant that only Rs.1,55,65,817/- is payable under Ex.P59 cannot prima facie be accepted as the measurement was taken by the Board after ten years of the judgment; whereas the contractor’s claims were made then and there by the contractor on actual measurement. The High Court directed the appellant to pay Rs.8,79,71,154/-. The High Court ordered single uniform rate for labor escalation at 173.60% and material escalation at 98%. The appellant contended that the direction of the High Court, is contradictory to the terms of the agreement as the material escalation and labor escalation are to be calculated on a monthly basis as claimed by the respondent in other bills.
  1. The High Court did not keep in view the respondent’s own method of calculation and erred in allowing labor escalation and material escalation at single uniform rate of 173.60% and 98% respectively and the direction of the High Court to pay Rs.5,81,53,892/- is not sustainable. As the High Court has directed the appellant to pay subsequent interest of Rs.2,98,17,262/- on the amount directed to be paid under Ex.P59. view of the express provision of Section 34(2) CPC, no future interest is payable under Ex.P59. The direction of the High Court to pay future interest of Rs.2,98,17,262/- on the claims made under Ex.P59 is not sustainable and is liable to be set aside.
  1. After getting the oral consent of the counsel for the appellant, the High Court has referred the parties to arbitration appointing Justice K.A. Nayar as the arbitrator. There was no arbitration agreement between the parties. The question falling for consideration is whether the High Court was right in referring the parties to arbitration without written instruction from the party.Insofar reference of the parties to arbitration, oral consent given by the counsel without a written memo of instructions does not fulfill the requirement under Section 89 CPC. In the absence of arbitration agreement, the court can refer them to arbitration only with written consent of parties either by way of joint memo or joint application; more so, when government or statutory body like the appellant is involved.
  1. In a subsequent decision in the context of examining the compromise under Order XXIII Rule 3 CPC, in Banwari Lal v. Chando Devi (Smt) and Anr.[4], this Court has observed that the case of Byram Pestonji Gariwala had ignored the law laid down in Gurpreet Singh v. Chatur Bhuj Goel  and held that when parties enter into a compromise, the court must insist upon the parties that the compromise be reduced into writing. The court stated that referring the parties to arbitration has serious civil consequences procedurally and substantively. When there was no arbitration agreement between the parties, without a joint memo or a joint application of the parties, the High Court ought not to have referred the parties to arbitration.
  1. Now coming on to the issue that whether this court can interfere in exercise of jurisdiction under Article 136 of the Indian Constitution. The learned senior counsel for the respondent urged that in exercise of jurisdiction, the Supreme Court normally does not reappreciate the evidence and findings of fact unless there is miscarriage of justice or manifest illegality. In support of his contention, he referred the case of Taherakhatoon (D) by LRs. v. Salambin Mohammad[5].In exercise of jurisdiction under Article 136 of the Constitution of India, this Court does not normally reappreciate the evidence and findings of fact; but where the findings of the High Court are perverse or the findings are likely to result in excessive hardship, the Supreme Court would not decline to interfere merely on the ground that findings in question are findings of fact.
  1. In the case of Mahesh Dattatray Thirthkar vs. State of Maharashtra[6], this Court in para (35) stated some principles in answer to the question of exercising power to interfere with findings of fact under Article 136 of Indian Constitution: “…..It is open to this Court to interfere with the findings of fact given by the High Court if the High Court has acted perversely or otherwise improperly…..”In the present case, the appellant has so far paid Rs.56.58 crores and additionally rupees five crores by order of this Court dated 20.02.2017. As discussed above, the findings of the High Court are perverse causing loss to the statutory body like the appellant-Board, therefore this Court would not decline to interfere merely on the ground that the findings in question are findings of fact.
  • DECISION HELD BY COURT:
  • In this case the judgment was given by JUSTICE R.BANUMATHI that the impugned judgment of the High Court is set aside and these appeals are allowed with the following observations and directions
  • The direction of the High Court to pay future interest of Rs.2,98,17,262/- is set aside.The award passed by the arbitrator Justice K.A. Nayar is set aside and the Arbitration Appeal filed by the appellant pending before the High Court of Kerala is allowed.
  • The amount of Rs.1,74,75,247/- paid under Ex.P20 which is in excess of the claim under Ex.P20 and the amount of rupees five crores paid to the respondent vide order of this Court be treated as payment under Ex.P59 for additional work including tender excess, material escalation and labor escalation charges and in full quit of all claims under Ex.P59.
  • Parties to bear their respective costs.

 

 

 

 

 

 

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